Obligation to withhold tax attracted only when the payment to a non-resident is wholly or partially chargeable to tax in India

Prasad Production Ltd. (Taxpayer) was awarded a contract by the Government of the State of Andhra Pradesh to establish IMAX Theatre at Hyderabad. The Taxpayer entered into an agreement with IMAX Ltd., Canada for purchase of the system (which included supply of equipment, installation, testing and initial training) as well as transfer of technology. As per the agreement, the total consideration for purchase of the system was US$ 1,365,000 and US$ 950,000 was towards technology transfer fee. During the year under consideration, the Taxpayer remitted US$ 902,500 to IMAX Ltd. on account of system ...